Generating alpha in private equity

PRIVATE EQUITY

Andrew Lebus, manager of Pantheon International Participations, explains the concept of delivering alpha through private equity, a sector which is often misunderstood.

One of the key features often touted as a benefit of investing in private equity is its low correlation to other asset classes, particularly public equities. As a result, private equity made its way into many institutional asset allocations in the 1990s and early 2000s, because of its presumed diversifying effect within portfolios. To some extent, this was correct. Valuations of private equity investments were, at that point, generally held at cost until an actual realisation event. Specifically, they were not adjusted up or down, even in rising or falling equity markets. The theory...